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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of
1934 (Fee Required)
For the Fiscal Year Ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of
1934 (Fee Required)
For the transition period from ___________________________
Commission File Number 0-19297
First Community Bancshares, Inc.
(Exact name of Registrant as specified in its charter)
Nevada 55-0694814
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1001 Mercer Street, Princeton, West Virginia 24740-5909
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 487-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $1 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
----
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 19, 1999.
$153,896,699 based on the sales price at that date
Common Stock, $1 par value
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 19, 1999.
Common Stock, $1 par value- 7,019,123
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the First Community Bancshares, Inc. 1998 Annual Report to Security
Holders are incorporated by reference in Part I and II hereof.
Portions of the First Community Bancshares, Inc. 1998 Annual Proxy Statement are
incorporated by reference in Part III hereof.
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Form 10-K Information
Table of Contents
1998 Form 10-K Annual Report
Page
Part I
Item 1. Business...................................................................................................... 3
Item 2. Properties.................................................................................................... 15
Item 3. Legal Proceedings............................................................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders........................................................... 17
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 18
Item 6. Selected Financial Data....................................................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................................... 19
Item 8. Financial Statements and Supplementary Data................................................................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................... 21
Part III
Item 10. Directors and Executive Officers of the Registrant............................................................ 21
Item 11. Executive Compensation........................................................................................ 21
Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 21
Item 13. Certain Relationships and Related Transactions................................................................ 21
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................................... 21
Signatures.................................................................................................... 23
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PART I
ITEM 1. BUSINESS
First Community Bancshares, Inc., formerly FCFT, Inc., (Registrant) was
incorporated in November 1989, under the laws of the State of Delaware to serve
as the holding company for and to facilitate the merger of First Community
Bancshares, Inc. (FCBI) and Flat Top Bankshares, Inc. (Flat Top). FCFT, Inc. was
a Delaware bank holding company with one wholly-owned subsidiary, First
Community Bank, Inc. (FCB), a state-chartered West Virginia bank headquartered
in Princeton, West Virginia. Flat Top was a West Virginia bank holding company
headquartered in Bluefield, West Virginia, with two wholly-owned subsidiaries,
The Flat Top National Bank of Bluefield (FTNB), a National Association, and
Peoples Bank of Bluewell (PBB), a state-chartered West Virginia bank. After the
mergers, FCFT, Inc. operated as the surviving holding company for the three
constituent banks described above as well as First Federal Savings Bank (FFSB)
which was acquired in November 1990. On December 30, 1994, FFSB was merged into
FCB. Subsequently on January 4, 1995, FTNB and PBB were also merged into FCB. On
September 30, 1997 the Company, formerly known as FCFT, Inc., merged with and
into First Community Bancshares, Inc. (FCBI), a Nevada corporation, formed to
facilitate the change of the Company's state of domicile from Delaware to Nevada
and to effect the change in name.
On December 29, 1995, FCBI reorganized its existing bank subsidiary, First
Community Bank, Inc., Princeton, West Virginia, by splitting it into two
separate banks. This was accomplished by chartering a second, affiliated,
Federal Deposit Insurance Corporation (FDIC) insured state commercial bank
formed through the acquisition of assets and assumption of the liabilities of
six of First Community Bank, Inc.'s operating divisions and branches located
within Mercer County, West Virginia. This new bank, First Community Bank of
Mercer County, Inc., headquartered in Princeton, West Virginia, consists of six
divisions with offices in Princeton, Bluefield, and Bluewell, as well as the
Credit Card Division, Trust Division, and Corporate/Administrative Division. The
main office of the reorganized First Community Bank, Inc., was relocated to
Buckhannon, West Virginia.
At the close of business on July 3, 1996, FCBI acquired Citizens Bank of
Tazewell (Citizens), headquartered in Tazewell, Virginia. Pursuant to the
Agreement and Plan of merger, FCBI exchanged 3.51 shares of its common stock for
each share of Citizen's common stock. Accordingly, 263,159 shares of FCFT, Inc.
common stock were issued to holders of Citizens common stock. The merger was
accounted for under the pooling of interests method. Accordingly, all financial
reporting periods presented have been restated to properly reflect this business
combination. Subsequent to the merger, Citizens operates as a wholly owned
subsidiary of FCBI. On June 2, 1997, the corporate name of Citizens was changed
to First Community Bank of Southwest Virginia, Inc. (FCB SWV, Inc.).
At the close of business on September 26, 1996, First Community Bank, Inc.
acquired the Grafton and Rowlesburg, West Virginia branches of Huntington
National Bank West Virginia. The acquisition of these branches added
approximately $21 million in deposits. The intangible value of this transaction
totaled approximately $1 million that is being amortized over a 15-year period.
This acquisition was accounted for under the purchase method of accounting.
Accordingly, the consolidated results in periods after September 26, 1996
include the operations of the Grafton and Rowlesburg branches only from the date
of acquisition.
On April 9, 1997, FCBI acquired 100% of the common stock of Blue Ridge Bank
(Blue Ridge), headquartered in Sparta, North Carolina. Blue Ridge, a $105
million state-chartered bank, with offices located in Sparta, Elkin, Hays and
Taylorsville, North Carolina. Pursuant to the Agreement and Plan of merger, FCBI
exchanged cash of $19.50 for each of Blue Ridge's 1,212,148 common shares. In
conjunction with the acquisition, Blue Ridge cancelled outstanding stock options
through the payment of $727,948 representing the difference between $19.50 and
the respective option prices. Total consideration including the payment for
cancellation of the options was $24.7 million and resulted in an intangible
asset of approximately $13.2 million, which is being amortized over a 15-year
period. The acquisition was partially funded with loan proceeds of $11.5 million
that the Company borrowed from an outside source. The loan agreement has certain
covenants that may restrict the payment of dividends to stockholders in the
event of default along with other customary borrowing provisions. The
acquisition was accounted for under the purchase method of accounting.
Accordingly, results of operations of Blue Ridge are included in consolidated
results of FCBI from the date of acquisition. Subsequent to the merger, Blue
Ridge operates as a wholly owned subsidiary of FCBI.
First Community Bank of Southwest Virginia, the Virginia subsidiary of First
Community Bancshares, Inc., opened a de novo branch in Wytheville, Virginia,
located at 910 E. Main Street on August 1, 1997.
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In September 1997, FCB-SWV, Inc. acquired three branches from First Virginia
Banks and Premier Bankshares. The branches located in Fort Chiswell, Pound and
Clintwood, Virginia had total deposits of $43,864,000 at the date of the branch
acquisition. The intangible value of this transaction was approximately $4.6
million that is being amortized over a 15-year period.
Currently, the Registrant is a multi-bank holding company and the banking
operations are expected to remain the principal business and major source of
revenue. The Registrant provides a mechanism for ownership of the subsidiaries
banking operations, provides capital funds as required and serves as a conduit
for distribution of dividends to stockholders. The Registrant also considers and
evaluates options for growth and expansion of the existing subsidiaries' banking
operations.
The Registrant currently derives substantially all of its revenues from
dividends paid by the subsidiary banks. Dividend payments by the banks are
determined in relation to earnings, asset growth and capital position and are
subject to certain restrictions by regulatory agencies as described more fully
under Supervision and Regulation of this item.
First Community Bank of Mercer County, Inc.
- -------------------------------------------
First Community Bank of Mercer County, Inc. (FCB, Mercer) is a state-chartered
bank organized under the banking laws of the State of West Virginia. FCB, Mercer
engages in general commercial and retail banking business in Mercer County, West
Virginia. It provides safe deposit services and makes all types of loans,
including commercial, mortgage and personal loans. FCB, Mercer also provides
trust services and its deposits are insured by the FDIC. FCB, Mercer is a member
of the Federal Reserve System and is a member of the Federal Home Loan Bank
(FHLB) of Pittsburgh.
First Community Bank, Inc.
- --------------------------
First Community Bank, Inc. (FCB, Inc.) is a state-chartered bank organized under
the banking laws of the State of West Virginia. FCB, Inc. engages in general
commercial and retail banking business in Upshur, Wyoming, Taylor, Nicholas,
Preston, Logan, and Webster Counties, West Virginia. It provides safe deposit
services and makes all types of loans, including commercial, mortgage and
personal loans. FCB, Inc. deposits are insured by the FDIC. FCB, Inc. is a
member of the Federal Reserve System and is a member of the FHLB of Pittsburgh.
First Community Bank of Southwest Virginia, Inc.
- ------------------------------------------------
First Community Bank of Southwest Virginia, Inc. (FCB-SWV), formerly Citizens
Bank of Tazewell, Inc. is a state-chartered bank organized under the banking
laws of the State of Virginia. FCB-SWV, Inc. engages in general commercial and
retail banking business in Dickenson, Tazewell, Wise and Wythe counties in
Southwest Virginia. It provides safe deposit services and makes all types of
loans including commercial, mortgage and personal loans. FCB-SWV, Inc. deposits
are insured by the FDIC. FCB-SWV, Inc. is a member of the Federal Reserve
System.
Blue Ridge Bank
- ---------------
Blue Ridge Bank (Blue Ridge) is a state-chartered bank organized under the laws
of the state of North Carolina. Blue Ridge engages in general commercial and
retail banking business in Alexander, Alleghany, Surry and Wilkes counties in
North Central North Carolina. It provides safe deposit services and makes all
types of loans including commercial, mortgage and personal loans. Blue Ridge
deposits are insured by the FDIC. Blue Ridge is a member of the Federal Reserve
System.
Pending Mergers
- ---------------
Early in 1999, the Company and its four subsidiary banks entered into an
Agreement to Merge which provides for the merger of the four banks into a single
national bank under the charter of First Community Bank, Inc. which will be
converted to a national association as part of the reorganization (pending the
regulatory approval of the Comptroller of the Currency). From the effective date
of the merger (expected completion on April 30, 1999), all banking operations
will be conducted under the charter and title of First Community Bank, N.A., a
national association supervised by the Comptroller of the Currency.
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Lending Activities
- ------------------
The Company's banking subsidiaries generate revenues primarily through the
investment of borrowed and deposited funds in earning assets. These assets are
comprised of securities available for sale, investment securities, short-term
investment vehicles and loans to businesses and individuals. Average loans
represent approximately 67% of average earning assets and present a greater
level of credit risk to the Company when contrasted with investment securities.
The principal lending activities of the banks are concentrated primarily within
its market areas in West Virginia and the surrounding mid-Atlantic area. These
are areas with which bank personnel are most acquainted and are within
reasonable distances of the banks which allows for timely communications with
customers as well as periodic inspections of collateral.
Loan portfolios total $611.5 million at December 31, 1998 and are comprised of
commercial, real estate and consumer loans including credit cards and home
equity loans. Commercial and commercial real estate loans comprise 40.5% of the
total loan portfolio. Commercial loans include loans to small to mid-size
industrial and commercial and service companies that include but are not limited
to, coal mining companies, manufacturers, automobile dealers, and retail and
wholesale merchants. Collateral securing these loans includes equipment,
machinery, inventory, receivables, vehicles and commercial real estate.
Commercial loans are considered to contain a higher level of risk than other
loan types although care is taken to minimize these risks. Underwriting
standards require a comprehensive review and independent evaluation of virtually
all commercial loans by Credit Administration and Discount Committees prior to
approval with updates to these credit reviews performed periodically on a
quarterly or annual basis depending on the size of the loan relationship.
Real estate mortgage loans comprise 37.3% of the total loan portfolio. Mortgage
loans to consumers are secured primarily by first lien deeds of trust. These
loans generally do not exceed an 80% loan to value ratio at the loan origination
date and are considered to contain normal risk. Loans in the real estate
mortgage category have historically yielded the lowest loss ratio of all loan
types.
Consumer loans comprise 20.6% of the total loan portfolio. Collateral for these
loans include automobiles, boats, recreational vehicles, and other personal
property. Personal loans, home equity loans and unsecured credit card
receivables are also included as consumer loans. Historically, losses on these
types of loans have been minimal; however, indirect lending through various
automobile dealerships in 1996 and 1997 led to a significant increase in
consumer loan charge-offs in 1997 and 1998. During 1998, $14 million in credit
card revolving loan accounts were sold from the loan portfolio. This sale
represented substantially all credit card loans held by the Bank.
The average yield on a tax equivalent basis on all loans in 1998 was 9.70% and
average loans expressed as a percentage of average deposits were 74% in 1998.
This percentage represents a lower average level of outstanding loans when
compared with historical loan to deposit ratios of 81% in 1997 and 84% in 1996.
Employees
- ---------
The Registrant and its subsidiaries had 505 employees at December 31, 1998.
Management considers employee relations to be excellent.
Competition
- -----------
The Company's subsidiaries have been able to compete effectively with other
financial institutions in their respective market areas. The subsidiaries
emphasize customer service in an effort to establish long-term customer
relationships and build customer loyalty. The subsidiaries of the Company have
consolidated services such as data processing, accounting, loan review and
compliance, and internal audit services to enhance the ability to compete
effectively in its respective markets.
Principal competition for the banking subsidiaries is provided by other local
and regional commercial banking companies as well as Thrift Institutions, Credit
Unions and investment brokerage firms. Other non-bank organizations including
regional and national mortgage origination firms and manufacturer captive credit
corporations also provide competition for residential real estate loans and
consumer loans.
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Supervision and Regulation
- --------------------------
The Registrant is a bank holding company within the meaning of the Bank Holding
Act of 1956 (Act), as amended, and is registered as such with the Board of
Governors of the Federal Reserve System. The Registrant is required to file with
the Board of Governors quarterly reports of the Registrant and the subsidiary
and such other information as the Board of Governors may require. The Federal
Reserve makes periodic examinations of the Registrant typically on an annual
basis. The Act requires every bank holding company to obtain prior approval of
the Board of Governors before acquiring substantially all the assets or direct
or indirect ownership or control of more than 5% of the voting shares of any
bank which is not already majority-owned. The Act also prohibits a bank holding
company, with certain exceptions, from engaging in, or acquiring direct or
indirect control of more than 5% of the voting shares of any company engaged in
non-banking activities.
Bank holding companies and their subsidiary banks are also subject to the
provisions of the Community Reinvestment Act of 1977 ("CRA"). Under the CRA, the
Federal Reserve Board is required, in connection with its examination of a bank,
to assess such bank's record in meeting the credit needs of the communities
served by that bank, including low and moderate-income neighborhoods. Further,
such assessment is also required of any bank holding company which has applied
to (i) charter a National bank, (ii) obtain deposit insurance coverage for a
newly chartered institution, (iii) establish a new branch office that will
accept deposits, (iv) relocate an office, or (v) merge or consolidate with, or
acquire the assets or assume the liabilities of a federally-regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve Board will
assess the record of each subsidiary of the applicant bank holding company, and
such records may be the basis for denying the application or imposing conditions
in connection with approval of the application. On July 1, 1995, the federal
bank regulators amended the CRA regulations to simplify enforcement of the CRA
by substituting the prior twelve assessment categories with three performance
categories for use in calculating CRA ratings. The federal bank regulators will
evaluate banks under the lending, investment, and service tests. Additional data
collection and reporting requirements are imposed on institutions which accept
mortgage loan applications within metropolitan statistical areas.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") was enacted by Congress on August 9, 1989. Among the more significant
consequences of FIRREA with respect to bank holding companies is the impact of
the "cross-guarantee" provision and the significantly expanded enforcement
powers of bank regulatory agencies. Under the cross-guarantee provision, if one
depository institution subsidiary of a multi-unit holding company fails or
requires FDIC assistance, the FDIC may assess a commonly controlled depository
institution for the estimated losses suffered by the FDIC. While the FDIC's
claim is junior to the claims of non-affiliated depositors, holders of secured
liabilities, general creditors, and subordinated creditors, it is superior to
the claims of shareholders. Among the significantly expanded enforcement powers
of the bank regulatory agencies are the powers to (i) obtain cease and desist
orders, (ii) remove officers and directors, (iii) approve new directors and
senior executive officers of certain depository institutions, and (iv) assess
criminal and civil money penalties for violations of law, regulations. or
conditions imposed by, or agreements with, regulatory agencies.
In September 1994, the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 was passed. This legislation significantly changes the laws
governing interstate banking. Beginning on September 29, 1995, bank holding
companies could acquire banks located in any state, despite former prohibitive
state statutes, subject to certain conditions. Beginning on June 1, 1997, banks
were allowed to merge or consolidate on an interstate basis. States may elect to
"opt-out" of this provision by expressly prohibiting interstate bank mergers.
This Act also permits banks to branch into other states on a de novo basis
provided that the state has enacted a law that permits de novo interstate branch
banking.
The banking subsidiaries of the Registrant are subject to certain restrictions
by regulatory bodies which limit the amounts and the manner in which it may loan
funds to the Registrant. The banks are further subject to restrictions on the
amount of dividends that can be paid to the Registrant in any one calendar year
without prior approval by primary regulators. Payment of dividends by the
subsidiary banks to the Registrant cannot exceed net profits, as defined, for
the current year combined with net profits for the two preceding years. In
addition, any distribution that might reduce the bank's equity capital to unsafe
levels or which, in the opinion of regulatory agencies, or is not in the best
interests of the public, could be prohibited. ( For additional information
concerning these restrictions, see Note 14 of the Notes to Consolidated
Financial Statements incorporated by reference in Part II of this report.)
Governmental Monetary Policies and Economic Controls
- ----------------------------------------------------
The earnings of the Registrant and its subsidiaries are affected by the monetary
policies of the Federal Reserve System. An important function of the Federal
Reserve System is to regulate the National supply of credit in order to
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deal with economic conditions. The instruments employed by the Federal Reserve
are open market operations of U.S. Government securities, changes in the
discount rate on member bank borrowings, changes in Federal Funds rates and
changes in reserve requirements. These policies influence, in various ways, the
level of the company's investments, loans and deposits and rates earned on its
earning assets and interest rates paid on liabilities.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL
A. & B. AVERAGE BALANCE SHEETS--NET INTEREST INCOME ANALYSIS
(Amounts in Thousands, except %)
1998 1997 1996
---- ---- ----
AVERAGE INTEREST YIELD/RATE AVERAGE INTEREST YIELD/RATE AVERAGE INTEREST YIELD/RATE
BALANCE (1) (1) BALANCE (1) (1) BALANCE (1) (1)
------- --- --- ------- --- --- ------- --- ---
Earning Assets:
Loans (2)
Taxable $ 634,342 $61,355 9.67% $601,492 $58,676 9.76% $507,554 $49,443 9.74%
Tax-Exempt 13,425 1,490 11.10% 15,993 1,657 10.36% 15,401 1,708 11.09%
---------- ------- ------ -------- ------- ------ -------- ------- ------
Total 647,767 62,845 9.70% 617,485 60,333 9.77% 522,955 51,151 9.78%
Reserve for Loan
Losses (11,731) (9,770) (8,797)
---------- ------- ------ -------- ------- ------ -------- ------- ------
Net Total 636,036 62,845 9.88% 607,715 60,333 9.93% 514,158 51,151 9.95%
Securities Available For
Sale:
Taxable 121,704 7,750 6.37% 122,326 8,226 6.72% 104,112 6,690 6.43%
Tax-Exempt 26,056 2,015 7.73% 17,162 1,388 8.09% 15,472 1,333 8.61%
---------- ------- ------ -------- ------- ------ -------- ------ ------
Total 147,760 9,765 6.61% 139,488 9,614 6.89% 119,584 8,023 6.71%
Investment Securities:
Taxable 20,221 1,307 6.46% 45,581 2,820 6.19% 65,857 4,233 6.43%
Tax-Exempt 74,766 6,036 8.07% 59,547 4,830 8.11% 47,026 3,776 8.03%
---------- ------- ------ -------- ------- ------ -------- ------- ------
Total 94,987 7,343 7.73% 105,128 7,650 7.28% 112,883 8,009 7.09%
Interest-Bearing
Deposits 56,136 3,007 5.36% 418 44 10.53% 750 28 3.73%
Federal Funds Sold 29,628 1,593 5.38% 17,127 949 5.54% 2,188 117 5.35%
---------- ------- ------ -------- ------- ------ -------- ------- ------
Total Earning Assets 964,547 84,553 8.77% 869,876 78,590 9.03% 749,563 67,328 8.98%
Other Assets 93,984 79,604 54,758
---------- ------- ------ -------- ------- ------ -------- ------- ------
Total $1,058,531 $949,480 $804,321
========== ======== ========
Interest-Bearing
Liabilities:
Demand Deposits $ 134,195 3,732 2.78% $111,177 3,064 2.76% $ 92,857 2,519 2.71%
Savings Deposits 150,749 4,452 2.95% 141,827 4,350 3.07% 134,178 4,150 3.09%
Time Deposits 474,263 26,196 5.52% 406,208 21,359 5.26% 313,899 16,501 5.26%
Short-Term Borrowings 51,457 2,288 4.45% 59,462 2,623 4.41% 64,933 2,886 4.44%
Long-Term Borrowings 23,468 1,459 6.22% 22,654 1,494 6.59% 15,130 877 5.80%
---------- ------- ------ -------- ------- ------ -------- ------- ------
Total Interest-Bearing
Liabilities 834,132 38,127 4.57% 741,328 32,890 4.43% 620,997 26,933 4.34%
------- ------ ------- ------ ------- ------
Demand Deposits 111,565 100,158 84,265
Other Liabilities 12,236 13,955 13,465
Stockholders' Equity 100,598 94,039 85,594
---------- -------- --------
Total $1,058,531 $949,480 $804,321
========== ======== ========
Net Interest Income $46,426 $45,700 $40,395
======= ======= =======
Net Interest Rate Spread (3) 4.20% 4.60% 4.64%
===== ===== =====
Net Interest Margin (4) 4.81% 5.25% 5.39%
===== ===== =====
(1) Fully Taxable Equivalent-Using the Federal statutory rate of 35% as applied
to non-taxable loans and securities in periods in which related tax
benefits arise.
(2) Non-accrual loans are included in average balances outstanding but with no
related interest income.
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(3) Represents the difference between the yield on earning assets and cost of
funds.
(4) Represents tax equivalent net interest income divided by average interest
earning assets.
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C. RATE AND VOLUME ANALYSIS OF INTEREST (1)
(Amounts in Thousands)
1998 Compared to 1997 1997 Compared to 1996
Increase/(Decrease) due to Increase/(Decrease) due to
-------------------------- --------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest Earned On:
Loans $ 2,902 $ (390) $ 2,512 $ 9,228 $ (46) $ 9,182
Investment securities available
for sale 649 (498) 151 1,353 238 1,591
Investment securities
held to maturity (405) 98 (307) (245) (114) (359)
Interest bearing deposits
with other banks 2,995 (32) 2,963 (17) 33 16
Federal funds sold 673 (29) 644 828 4 832
-------- -------- -------- -------- -------- --------
Total interest earning
assets 6,814 (851) 5,963 11,147 115 11,262
-------- -------- -------- -------- -------- --------
Interest Paid On:
Demand deposits 640 28 668 504 41 545
Savings deposits 267 (165) 102 235 (35) 200
Time deposits 3,718 1,119 4,837 4,854 4 4,858
Short-term borrowings (356) 31 (325) (241) (22) (263)
Long-term debt 53 (98) (45) 483 134 617
-------- -------- -------- -------- -------- --------
Total interest bearing
liabilities 4,322 915 5,237 5,835 122 5,957
-------- -------- -------- -------- -------- --------
Change in net interest
income $ 2,492 $ (1,766) $ 726 $ 5,312 $ (7) $ 5,305
======== ======== ======== ======== ======== ========
(1) Fully Taxable Equivalent-using the federal statutory rate of 35% as applied
to non-taxable loans and securities in periods in which related tax
benefits arise.
The preceding table sets forth a summary of the changes in interest earned and
paid resulting from changes in volume of earning assets and paying liabilities
and changes in rates thereon. For purposes of this analysis, the change in
interest due to both rate and volume has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts.
II. INVESTMENT PORTFOLIO
A. Amortized Cost of Investment Securities Held to Maturity:
December 31
-----------
(Amounts in Thousands) 1998 1997 1996
---- ---- ----
U.S. Treasury securities $ 100 $ 4,098 $ 8,247
U.S. Government agencies and corporations 7,546 26,377 43,494
States and political subdivisions 75,009 77,641 47,532
Other securities 1,361 1,058 1,055
-------- -------- --------
$ 84,016 $109,174 $100,328
======== ======== ========
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Market Value of Securities Available for Sale:
December 31
-----------
(Amounts in Thousands) 1998 1997 1996
---- ---- ----
U.S. Treasury securities $ -- $ -- $ 1,005
U.S. Government agencies and corporations 119,508 132,746 110,967
States and political subdivisions 37,343 22,576 16,037
Other securities 36,343 6,473 8,104
-------- -------- --------
$193,194 $161,795 $136,113
======== ======== ========
B. Maturity and Yields
The required information is incorporated by reference to pages 33 and 34 of the
1998 Annual Report.
C. There are no issues included in obligations of states and political
subdivisions or other securities which exceed ten percent of
stockholders' equity.
III. LOAN PORTFOLIO
A. Loan Summary
December 31
-----------
(Amounts in Thousands) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Commercial, Financial and Agricultural $ 77,233 $ 82,445 $ 79,278 $ 71,441 $ 61,691
Real Estate- Commercial 170,683 202,625 166,787 152,579 129,672
Real Estate- Construction 8,988 9,612 10,589 5,608 2,406
Real Estate- Residential 228,540 227,465 171,455 155,282 143,350
Consumer 127,169 151,429 120,720 100,843 84,453
Other 894 1,185 552 519 501
-------- -------- -------- -------- --------
Total 613,507 674,761 549,381 486,272 422,073
Less: Unearned Income 2,014 2,944 1,678 1,121 883
-------- -------- -------- -------- --------
611,493 671,817 547,703 485,151 421,190
Less: Reserve for Loan
Losses 11,404 11,406 8,987 8,321 8,479
-------- -------- -------- -------- --------
Net Loans $600,089 $660,411 $538,716 $476,830 $412,711
======== ======== ======== ======== ========
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B. Maturities and Rate Sensitivity of Loan Portfolio at December 31, 1998:
Remaining Maturities
--------------------
(Amounts in Thousands)
Over One Over
One Year Year to Five
and Less Five Years Years Total Percent
-------- ---------- ----- ----- -------
Commercial, Financial and
Agricultural $ 42,480 $ 15,788 $ 18,965 $ 77,233 12.63%
Real Estate- Commercial 44,516 45,041 81,112 170,669 27.91%
Real Estate- Construction 2,623 428 5,937 8,988 1.47%
Real Estate- Mortgage 28,479 48,432 151,307 228,218 37.32%
Consumer 22,827 49,040 53,624 125,491 20.52%
Other 648 153 93 894 0.15%
-------- -------- -------- -------- -------
$141,573 $158,882 $311,038 $611,493 100.00%
======== ======== ======== ======== =======
Rate Sensitivity:
Pre-determined Rate $ 89,116 $117,367 $257,540 $464,023 75.88%
Floating or Adjustable Rate 52,457 41,515 53,498 147,470 24.12%
-------- -------- -------- -------- -------
$141,573 $158,882 $311,038 $611,493 100.00%
======== ======== ======== ======== =======
23.15% 25.98% 50.87% 100.00%
======== ======== ======== ========
C. Risk Elements. The required information for risk elements is included
below and incorporated by reference to pages 17 through 19 of the 1998
Annual Report.
Nonperforming Assets:
December 31
-----------
(Amounts in Thousands) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Non-accruing Loans $7,763 $9,988 $5,476 $4,371 $6,909
Loans Past Due Over 90 Days 377 4,391 780 673 968
Restructured Loans Per-
forming in Accordance
With Modified Terms 509 534 401 440 640
Gross Interest Income Which
Would Have Been Recorded
Under Original Terms of
Non-Accruing and Re-
Structured Loans 607
Actual Interest Income During the Period 231
Commitments to Lend
Additional Funds on Non-Performing Assets --
Management believes that the extent of problem loans at December 31, 1998 is
disclosed as non-performing assets or delinquent loans in the preceding charts.
However, there can be no assurance that future circumstances, such as further
erosion of economic conditions and the related potential effect that such
erosion may have on certain borrowers' ability to continue to meet payment
obligations, will not lead to an increase in problem loan totals. Management
11
12
believes that the non-performing asset carrying values will be substantially
recoverable, taking into consideration the adequacy of the applicable collateral
and, in certain cases, partial write-downs which have been taken and allowances
that have been established.
It is the Registrant's policy to discontinue the accrual of interest on loans
based on their payment status and evaluation of the related collateral and the
financial strength of the borrower. The accrual of interest is normally
discontinued when a loan becomes 90 days past due as to principal or interest.
At December 31, 1998, and at the date of this report, the Company does not have
any concentrations of loans to borrowers engaged in similar activities exceeding
10% of total loans, net of unearned income.
The Company has no significant concentrations of credit risk other than
geographic concentrations. Most loans in the current portfolio are made and
collateralized in West Virginia and the surrounding mid-Atlantic area. Although
portions of the West Virginia economy are closely related to coal and timber,
they are supplemented by service industries. The current economies of the
Company's markets are relatively stable and are not seen as highly subject to
volatile economic change.
The following table presents the Company's investment in loans considered to be
impaired:
December 31
-----------
1998 1997
(Amounts in thousands) ---- ----
Commercial, financial and agricultural $5,112 $6,800
Real estate-mortgage 154 708
------ ------
Total investment in loans considered to be impaired $5,266 $7,508
===== =====
Under SFAS No. 114, the allowance for loan losses related to loans that are
identified for evaluation in accordance with SFAS No. 114 is based on discounted
cash flows using the loan's initial effective interest rate or the fair value of
the collateral for certain collateral dependent loans.
12
13
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. 1. Summary of Loan Loss Experience:
Years Ended December 31
-----------------------
(Amounts in Thousands, Except Percent Data) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance of reserve at beginning of period .............. $11,406 $ 8,987 $ 8,321 $ 8,479 $ 9,568
Reserve of subsidiaries at date of acquisition ......... -- 1,981 -- -- --
Charge-offs:
Commercial, financial and agricultural ............. 3,602 2,052 369 1,875 2,237
Real estate- residential ........................... 367 385 275 109 163
Installment ........................................ 3,019 2,761 1,537 899 963
------- ------- ------- ------- -------
Total Charge-offs .............................. 6,988 5,198 2,181 2,883 3,363
------- ------- ------- ------- -------
Recoveries:
Commercial, financial and agricultural ............. 190 130 249 126 83
Real estate-residential ............................ 31 31 26 35 7
Installment ........................................ 515 512 299 329 420
------- ------- ------- ------- -------
Total Recoveries ............................... 736 673 574 490 510
------- ------- ------- ------- -------
Net charge-offs ........................................ 6,252 4,525 1,607 2,393 2,853
Provision charged to operations ........................ 6,250 4,963 2,273 2,235 1,764
------- ------- ------- ------- -------
Balance of reserve at end of period .................... $11,404 $11,406 $ 8,987 $ 8,321 $ 8,479
======= ======= ======= ======= =======
Ratio of net charge-offs to average loans outstanding... .97% .73% .31% .54% .70%
======= ======= ======= ======= =======
Ratio of reserve to total loans outstanding ............ 1.86% 1.70% 1.64% 1.72% 2.01%
======= ======= ======= ======= =======
A. 2. The required information is incorporated by reference to page 18 of
the 1998 Annual Report.
B. Allocation of Reserve for Loan Losses:
(Amounts in Thousands, Except Percent Data) December 31
-----------
1998 1997 1996 1995 1994
---------------- ----------------- ----------------- ----------------- -----------------
Commercial, Financial
and Agricultural $ 4,054 40% $ 4,795 42% $ 3,167 45% $ 3,465 46% $ 3,327 45%
Real Estate- Mortgage 2,297 39% 2,819 35% 1,956 33% 1,751 33% 747 35%
Consumer 1,378 21% 1,979 23% 1,567 22% 1,280 21% 1,099 20%
Unallocated 3,675 N/A 1,813 N/A 2,297 N/A 1,825 N/A 3,306 N/A
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $11,404 100% $11,406 100% $ 8,987 100% $ 8,321 100% $ 8,479 100%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
The percentages in the table above represent the percent of loans in each
category of total loans.
V. DEPOSITS
A. The required information for average deposits and rates paid by type is
included on page 7 of this report.
B. Not applicable.
C. Not applicable.
13
14
D. The required information is incorporated by reference to page 37 of the
1998 Annual Report and as follows:
Maturities of Time Deposits of $100,000 or more
(Amounts in Thousands)
1998
----
Three months or less .................... $ 37,656
Over Three to Six Months ................ 21,245
Over Six to Twelve Months................ 25,877
Over Twelve Months ...................... 28,574
--------
Total $113,352
========
E. Not applicable.
VI. RETURN ON EQUITY AND ASSETS
A. The required information is incorporated by reference to page 12 of the
1998 Annual Report.
VII. SHORT-TERM BORROWINGS
A. Securities Sold Under Agreements to Repurchase and Other Short-Term
Borrowings:
The Company uses various short-term funding sources including term repurchase
agreements, customer repurchase agreements and Federal funds purchased. The
Company's short-term borrowings and rates paid are summarized as follows
(Amounts in Thousands, Except Percent Data):
1998 1997 1996
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
At year-end $47,680 3.97% $55,056 4.28% $53,031 4.02%
Average during year 51,457 4.45% 59,462 4.41% 64,933 4.44%
Maximum month-end
balance 55,755 63,782 54,833
B. Long-Term Advances From the Federal Home Loan Bank (FHLB) and Long-Term
Debt
Two subsidiaries of the Company are members of the FHLB and as such have the
ability to obtain advances from the FHLB. The Company had long-term advances
from the FHLB ( original maturities in excess of one year) of $10 million with a
weighted average rate of 6.01% at December 31, 1998 and $15 million with a
weighted average rate of 5.83% at December 31, 1997. The advances from the FHLB
are secured by certain qualifying first mortgage loans, stock in the FHLB,
mortgage-backed securities and certain other investment securities.
14
15
ITEM 2. PROPERTIES
FIRST COMMUNITY BANK OF MERCER COUNTY, INC.
The offices of the Registrant are located within First Community Bank of Mercer
County, Inc. at 1001 Mercer Street, Princeton, West Virginia. Principal
properties owned by the subsidiary banks primarily consist of modern office
facilities described as follows:
Princeton- Two-story, 30,000 square foot banking offices with detached
drive-up/walk-in facility in Princeton, West Virginia, completed in 1976; Pine
Plaza branch office with drive-up located in Princeton, West Virginia,
constructed in 1986 on leased land with initial lease term plus renewal options
totaling twenty years; moveable, modular branch office with drive-up/walk-in
located in Matoaka, West Virginia, constructed in 1983 on leased land. Seven (7)
automated teller machines located throughout Mercer County.
Bluefield- Three-story, 37,000 square foot banking offices located on Federal
Street with detached drive-up facility, completed in 1972 and walk-up automated
teller machine located on premises; one off-site automated teller machine on
leased land in Bluefield Plaza.
Bluewell- Two-story, 8,200 square foot banking offices with drive-up facility
located in Bluewell, West Virginia completed in 1965; one drive-up automated
teller machine located on premises.
Green Valley- Two-story, 6,000 square foot banking office with drive-up located
in Green Valley, West Virginia, constructed in 1978. Branch office leased in
Mercer Mall; one walk-up automated teller machine located on premises.
FIRST COMMUNITY BANK, INC.
Wyoming County- Two-story banking offices located in Pineville, West Virginia,
acquired in 1961; two-story banking offices with drive-up located in Oceana,
West Virginia, constructed in 1984; branch office with drive-up located in
Mullens, West Virginia, constructed in 1984; moveable, modular branch office
with drive-up/walk-in located in Pineville, West Virginia, constructed in 1984;
three automated teller machines.
Upshur County- Three-story banking offices with an off-premise drive-up/walk-in
facility located in Buckhannon, West Virginia, acquired in 1937; branch office
with drive-up located in Tennerton, West Virginia, constructed in 1980; two
automated teller machines.
Taylor County- Two-story banking offices with an attached drive-up/walk-up
facility located in Grafton, West Virginia, constructed in 1966; one automated
teller machine; one-story, 1,200 square foot banking offices with an attached
drive-up facility, located in the Blueville area of Grafton, West Virginia,
constructed in 1968.
Nicholas County- Two story banking offices and office addition with drive-up
located in Richwood, West Virginia; off-premises facility with drive-up located
in Richwood, West Virginia, constructed in 1977 on leased land; one and one-half
story branch office with drive-up located in Summersville, West Virginia,
constructed in 1984; one story branch office with an adjoining drive-up located
in Craigsville, West Virginia, constructed in 1985; three automated teller
machines.
Webster County- Branch office with drive-up located in Cowen, West Virginia,
constructed in 1988.
Preston County- One-story, 4,000 square foot banking offices with an attached
drive-up facility located in Rowlesburg, West Virginia, constructed in the early
1920's and remodeled in 1981.
Logan County- Two and one-half story banking facility with attached two-lane
drive-up located in Man, West Virginia, constructed in 1976 with additional
levels added in 1981; separate mini-bank facility with four drive-thru lanes;
banking sales center located inside the Wal-Mart Supercenter in Logan, West
Virginia; one automated teller machine.
15
16
FIRST COMMUNITY BANK OF SOUTHWEST VIRGINIA, INC.
Tazewell County- Bi-level, 6,500 square foot banking offices with attached
drive-up facility and one automated teller machine located in Tazewell,
Virginia, constructed in 1978, remodeled in 1981 and 1995; one-story, 2,500
square foot banking offices with an attached drive-up facility, located in
Richlands, Virginia, constructed in 1989 and remodeled in 1995.
Dickenson County- Two story bank building with attached drive-up constructed in
1973 located in Clintwood, Virginia.
Wythe County- One story bank building with attached two-lane drive-up and one
automated teller machine located in Fort Chiswell, Virginia, constructed in
1962, additions in 1984 and completely remodeled in 1994; a leased one story
banking facility with walk-up automated teller machine and two-lane drive-up
remodeled in 1997, located in Wytheville, Virginia.
Wise County- One story bank building with attached two-lane drive-up located in
Pound, Virginia.
BLUE RIDGE BANK
Alleghany County- One story 17,980 square foot bank building constructed in 1987
located in Sparta, North Carolina.
Alexander County- 4,000 square foot one story banking facility situated on
approximately three acres in Taylorsville, North Carolina; with a walk-up
automated teller machine.
Wilkes County- One story, 1,500 square foot banking facility purchased by the
bank in 1995, located in Hays, North Carolina.
Surry County- One story, 4,000 square foot banking facility purchased by the
bank in 1995, located in Elkin, North Carolina; with a walk-up automated teller
machine.
ITEM 3. LEGAL PROCEEDINGS
The Registrant and its subsidiaries (the Company) are plaintiffs and defendants
in lawsuits arising out of the normal course of business, in which claims for
monetary damages are asserted. Management, after consulting with legal counsel
handling the respective matters, is of the opinion that the ultimate outcome of
such pending actions will not have a material effect on the consolidated results
of operations or financial condition of the Registrant. Following is a summary
of significant proceedings along with recent developments, where applicable.
In August 1997, the Company was named as a defendant in a suit styled Ann
Tierney Smith, as Executrix of the Estate of Katharine B. Tierney, Ann Barclay
Smith and Laurence E. Tierney Smith, Plaintiffs vs. FCFT, Inc., First Community
Bank, Inc., Gentry, Locke, Rakes & Moore, and W. William Gust, Defendants, Civil
Action No. 97-CV-408-K, seeking to overturn the establishment of a private
foundation for which the Company's Trust and Financial Services Division serves
as Trustee. The suit filed by heirs of the Foundation donor, seeks a total of $6
million in compensatory and punitive damages as well as the termination of the
Foundation. The Company and Trustee believe the creation and the operation of
the Foundation represent the intent and will of the donor, accordingly, the
Company has entered a vigorous defense of this suit and the continuation of the
foundation's purpose. On October 15, 1998, the plaintiffs in the matter filed a
motion for summary judgment. In a hearing on this motion, the Court requested
that the Company, as defendant, file a motion for summary dismissal. The motion
for summary dismissal was filed with the Court on January 14, 1999, and in a
subsequent ruling, the Court partially granted the bank's motion for summary
judgment finding no wrongdoing by the bank in its discretionary use of principal
in this matter. The plaintiffs subsequently filed a motion requesting that the
court's order dismissing a portion of the case be amended to allow the plaintiff
to immediately appeal the decision to the State Supreme Court. No ruling on this
motion has been made as of this report. Both management and the Company's legal
counsel are of the opinion that the remainder of this suit is without merit and
will be successfully defended with no material adverse impact on the Company's
financial condition or results of operations.
16
17
Civil suit number CAN-97-C-171 styled James A. Sill d/b/a Sill Trucking vs.
First Community Bank, Inc. and Carla Elder and Robert Williams was filed on
October 15, 1998 alleging the Company aided a customer in converting checks
payable to the company for payment on loan accounts of the co-defendants. The
plaintiff claims to have purchased rolling stock from co-defendants pursuant to
an oral contract. The suit seeks $150,000 in compensatory and punitive damages.
The Company has no knowledge of arrangements between the two plaintiffs and was
not a party to the oral contract. The Company has filed an answer to this suit
denying the allegations against the Company and intends to vigorously defend
this matter. No material adverse impact on the Company's financial condition or
results of operations is expected as a result of this litigation.
Civil Action No. 82-C-610, styled Rhondal L. Toler, et al, vs. Castle Rock Bank
of Pineville, filed on December 2, 1982 in the Circuit Court of Wyoming County,
West Virginia, was reported in the 1997 Annual Report on Form 10-K. In this
action, Rhondal L. and Annette Toler and Vern and Henrietta Ellison, Plaintiffs,
claimed that former representatives of a subsidiary of the Registrant
misrepresented the condition of a company at the time the Plaintiffs borrowed
money to purchase the company. The Company filed an answer denying all pertinent
allegations made by the Plaintiffs and additionally filed a counterclaim seeking
$322,000 plus costs. This case was dismissed in 1996 due to its prolonged
existence on the Court docket and the Plaintiff's failure to prosecute. The
Plaintiff has filed a motion to reinstate this matter. Ruling on this motion has
not been made as of the date of this report.
Additionally, the Company is also subject to certain asserted and unasserted
potential claims encountered in the normal course of business. In the opinion of
management, the resolution of these claims and unasserted potential claims will
not have a material adverse affect on the Company's financial position or
results of operations and, due to the relative smaller amounts of claims where
damages are sought and/or based upon the Company's evaluation, these matters
have not been included in this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
17
18
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
Market Price of Common Stock
- ----------------------------
The common stock of First Community Bancshares, Inc. is traded over-the-counter
and is quoted on the NASDAQ (Level III) Electronic Billboard. The following
table shows the approximate high and low bids as known to the Company or
reported by local brokers for each quarter in 1997 and 1998. Also, presented
below is the book value and cash dividends paid per share as of and for each
quarter of 1997 and 1998. The number of common stockholders of record on
December 31, 1998 was 2,149 and outstanding shares totaled 7,014,042.
Bid Book Value Cash Dividends
1997 High Low Per Share Per Share
- ---- ---- --- --------- ---------
First Quarter $23.68 $21.76 $12.83 $ .22
Second Quarter 26.40 22.60 13.30 .25
Third Quarter 28.90 25.40 13.58 .25
Fourth Quarter 32.00 26.20 13.85 .32
-----
$1.04
=====
1998
- ----
First Quarter $29.60 $24.48 $14.18 $ .25
Second Quarter 43.00 36.00 14.01 .25
Third Quarter 42.75 31.00 14.35 .25
Fourth Quarter 33.75 26.50 14.50 .30
-----
$1.05
=====
The holders of shares of common stock of the Company are entitled to such
dividends as the Board of Directors, in its discretion, may declare out of funds
legally available thereof. On March 16, 1999 a five for four stock split in the
form of a 25% stock dividend was declared and will be distributed to
stockholders of record on March 31, 1999.
The Company has historically paid dividends on a quarterly basis and currently
intends to continue to pay such dividends in the foreseeable future. However,
there can be no assurance that dividends will be paid in the future. The
declaration and payment of future dividends will depend upon, among other
things, the Company's earnings and financial condition, the general economic and
regulatory climate.
The Company's ability to pay dividends to its shareholders depends to a large
extent upon the dividends the Company receives from its subsidiaries. Dividends
paid by its banking subsidiaries are subject to restrictions under various
Federal banking laws. In addition, the banking subsidiaries must maintain
certain capital levels which may restrict their ability to pay dividends to the
Company. As of December 31, 1998, the net profits available for distribution to
the shareholders as dividends without regulatory approval were approximately
$1.5 million; however the regulators of the banking subsidiaries could
administratively impose stricter limits on the ability of the banking
subsidiaries to distribute net profits to the Company.
ITEM 6. SELECTED FINANCIAL DATA
The required information is incorporated by reference to page 12 of the 1998
Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The required information is incorporated by reference to pages 10 through 22 of
the 1998 Annual Report.
18
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk (IRR) and Asset/Liability Management
The Bank's profitability is dependent to a large extent upon its net interest
income (NII), which is the difference between its interest income on
interest-earning assets, such as loans and securities, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. The Bank, like
other financial institutions, is subject to interest rate risk to the degree
that its interest-earning assets reprice differently than its interest-bearing
liabilities. The Bank manages its mix of assets and liabilities with the goals
of limiting its exposure to interest rate risk, ensuring adequate liquidity, and
coordinating its sources and uses of funds. Specific strategies for management
of IRR have included shortening the amortized maturity of fixed-rate loans and
increasing the volume of adjustable rate loans to reduce the average maturity of
the Bank's interest-earning assets.
The Bank seeks to control its interest rate risk (IRR) exposure to insulate net
interest income and net earnings from fluctuations in the general level of
interest rates. To measure its exposure to IRR, the bank performs quarterly
simulations of NII using financial models which project NII through a range of
possible interest rate environments including rising, declining, most likely and
flat rate scenarios. The results of these simulations indicate the existence and
severity of IRR in each of those rate environments based upon the current
balance sheet position and assumptions as to changes in the volume and mix of
interest-earning assets and interest-paying liabilities and management's
estimate of yields attained in those future rate environments and rates which
will be paid on various deposit instruments and borrowings.
The following table summarizes the impact on NII and the Market Value of Equity
(MVE) as of December 31, 1998 and 1997, respectively, of immediate and sustained
rate shocks in the interest rate environment of plus and minus 100, 200, 300 and
400 basis points from the flat rate simulation. The table depicts the impact of
these charges over a twelve month period.
1998
- -----------------------------------------------------------------------------------------------------
Change in Market
Interest Rates Net Interest % Value of %
(Basis Points) Income Change Equity Change
- -------------- ------ ------ ------ ------
400 40,553.2 -7.8 66,179.6 -38.9
300 42,404.3 -3.5 79,027.9 -27.1
200 43,698.5 -0.6 89,626.2 -17.3
100 43,975.2 0.3 99,119.2 -8.5
- -0- 43,961.3 0.0 108,354.2 0.0
- -100 45,154.9 2.7 118,235.6 9.1
- -200 46,330.5 5.4 128,938.6 19.0
- -300 46,229.8 5.2 140,663.2 29.8
- -400 44,889.4 2.1 153,564.1 41.7
1997
- -----------------------------------------------------------------------------------------------------
Change in Market
Interest Rates Net Interest % Value of %
(Basis Points) Income Change Equity Change
- -------------- ------ ------ ------ -----
400 32,290.6 -25.5 90,873.7 -7.6
300 35,086.1 -19.1 92,359.7 -6.1
200 37,862.7 -12.7 94,062.0 -4.4
100 40,620.2 -6.3 96,045.5 -2.4
- -0- 43,358.8 0.0 98,390.1 0.0
- -100 46,079.4 6.3 101,192.9 2.8
- -200 48,781.8 12.5 104,572.5 6.3
- -300 51,466.0 18.7 108,701.2 10.5
- -400 54,132.2 24.8 113,982.1 15.8
The preceding table which illustrates the prospective effects of hypothetical
interest rate changes is based upon numerous assumptions, including relative and
estimated levels of key interest rate factors. Management feels that this type
of modeling technique, although useful, does not take into account all
strategies which management might undertake in response to a sudden and
sustained rate shock as depicted. Also, as market conditions vary from those
assumed in the sensitivity analysis, actual results will also differ due to:
prepayment/refinancing levels likely deviating from those assumed, the varying
impact of interest rate change caps or floors on adjustable rate assets, the
potential effect of changing debt service levels on customers with adjustable
rate loans, depositor early withdrawals and product
19
20
preference changes, and other internal/external variables. Additionally,
management does not believe that a rate shock of the magnitude described is
likely in the forecast period presented.
When comparing the impact of the rate shock analysis between 1998 and 1997, the
1998 changes in net interest income reflect a smaller fluctuation from the flat
rate scenario. The reduction in the fluctuations is attributed to the increased
life of the investment portfolio and the control measures taken in the fourth
quarter of 1998 to reduce deposit cost. Conversely the impact of the analysis
has a larger effect on the market value of equity due to increased portfolio
terms negotiated in 1998 in order to achieve higher yields in the presence of
the declining rate environment experienced in 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required information is incorporated by reference to pages 24 through 47 of
the 1998 Annual Report and as follows:
FIRST COMMUNITY BANCSHARES, INC.
QUARTERLY EARNINGS SUMMARY (UNAUDITED)
Quarterly earnings for the years ended December 31, 1998 and 1997 are as follows
(in thousands):
1998
--------------------------------------
March 31 June 30 Sept 30 Dec 31
-------- ------- ------- ------
Interest Income $20,655 $20,620 $20,330 $19,607
Interest Expense 9,551 9,678 9,633 9,267
------- ------- ------- -------
Net interest income 11,104 10,942 10,697 10,340
Provision for possible loan losses 1,287 3,789 749 425
Net interest income after provision
for loan losses 9,817 7,153 9,948 9,915
Other income 3,259 2,452 3,100 2,372
Other expenses 7,338 7,388 7,258 6,768
------- ------- ------- -------
Income before income taxes 5,738 2,217 5,790 5,519
Income taxes 1,784 681 1,795 1,903
------- ------- ------- -------
Net income $ 3,954 $ 1,536 $ 3,995 $ 3,616
======= ======= ======= =======
Per share:
Basic and diluted earnings $ .56 $ .22 $ .57 $ .51
Dividends $ .25 $ .25 $ .25 $ .30
Weighted average basic and
diluted shares outstanding 7,063 7,049 7,032 7,019
1997
--------------------------------------
March 31 June 30 Sept 30 Dec 31
-------- ------- ------- ------
Interest Income $16,546 $18,934 $19,512 $20,842
Interest Expense 6,942 7,946 8,609 9,393
------- ------- ------- -------
Net interest income 9,604 10,988 10,903 11,449
Provision for possible loan losses 630 1,087 736 2,510
Net interest income after provision
for possible loan losses 8,974 9,901 10,167 8,939
Other income 1,824 2,163 2,123 2,551
Other expenses 5,441 5,975 7,305 5,951
------- ------- ------- -------
Income before income taxes 5,357 6,089 4,985 5,539
Income taxes 1,660 1,950 1,598 1,668
------- ------- ------- -------
Net income $ 3,697 $ 4,139 $ 3,387 $ 3,871
======= ======= ======= =======
Per share:
Basic earnings $ 0.52 $ 0.59 $ 0.48 $ 0.55
Dividends $ 0.22 $ 0.25 $ 0.25 $ 0.32
Weighted average basic and
diluted shares outstanding 7,063 7,063 7,063 7,064
20
21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information concerning directors has been omitted in accordance
with General Instruction G. Such information regarding directors appears on
pages 3, 4, 5, and 6 of the Proxy Statement relating to the 1999 Annual Meeting
of Stockholders and is incorporated herein by reference.
A portion of the information relating to executive officers has been omitted in
accordance with General Instruction G. Such information regarding executive
officers appears on pages 6, 7, and 8 of the Proxy Statement relating to the
1999 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The required information concerning management remuneration has been omitted in
accordance with General Instruction G. Such information appearing on pages 7, 8,
9, and 10 of the Proxy Statement relating to the 1999 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required information concerning security ownership of certain beneficial
owners and management has been omitted in accordance with General Instruction G.
Such information appearing on page 6 of the Proxy Statement relating to the 1999
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information concerning certain relationships and related
transactions have been omitted in accordance with General Instruction G. Such
information appearing on pages 5 and 6 of the Proxy Statement relating to the
1999 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The Consolidated Financial Statements of First Community
Bancshares, Inc. and subsidiaries together with the independent
Auditors' Report dated January 29, 1999 are incorporated by
reference to pages 24 through 47 of the 1998 Annual Report which
is included herein as Exhibit 13.
(2) Financial Statement Schedules
All applicable financial statement schedules required by
Regulation S-X are included in the Notes to Consolidated Financial
Statements.
(b) No reports on Form 8-K were filed during the current year.
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(c) Exhibits:
(3) Articles of Incorporation and Bylaws
The Registrant's Articles of Incorporation and By-laws were
previously filed as exhibits (3)(i) and (3)(ii), respectively,
with the Annual Report on Form 10-K for the year ending 12/31/97
in connection with the change of corporate domicile to a Nevada
corporation.
(11) Statement Regarding Computation of Per Share Earnings
The statement regarding computation of per share earnings is
included as Note 10 of the Notes to Consolidated Financial
Statements in the 1998 Annual Report to Stockholders and is
incorporated herein by reference.
(13) Annual Report to Security Holders
(21) Subsidiaries of Registrant:
First Community Bank, Inc. (a West Virginia Corporation)
First Community Bank of Mercer County, Inc. (a West Virginia
Corporation)
First Community Bank of Southwest Virginia, Inc. (a
Virginia Corporation)
Blue Ridge Bank, Inc. (a North Carolina Corporation)
(23) Independent Auditors' Consent
(27) Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BY: /s/
-------------------------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
BY: /s/
-------------------------------------
Principal Accounting Officer
Signature Title Date
/s/________________________________ Director 3/30/99
(Sam Clark)
/s/________________________________ Director 3/30/99
(Allen T. Hamner)
/s/_______________________________ President, Chief Executive Officer 3/30/99
(James L. Harrison, Sr.) and Director (Principal Executive
Officer)
/s/________________________________ Director 3/30/99
(B.W. Harvey)
/s/________________________________ Director 3/30/99
(I. Norris Kantor)
/s/________________________________ Vice President, Chief Financial 3/30/99
(John M. Mendez) Officer and Director (Principal
Financial Officer)
/s/________________________________ Director 3/30/99
(A. A. Modena)
/s/________________________________ Director 3/30/99
(Robert E. Perkinson, Jr.)
/s/________________________________ Chairman of the Board and Director 3/30/99
(William P. Stafford)
/s/________________________________ Director 3/30/99
(William P. Stafford, II)
/s/________________________________ Director 3/30/99
(W. W. Tinder, Jr.)
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